Why Flames Arena Funding May Depend On The Federal Election

There’s been an awful lot of chatter lately about the Calgary Flames and their arena project. Ironically, the chatter has been about the lack of chatter about the arena project coming from the Flames organization.

But when you think about the bigger picture, about the Canadian economic and the political landscape, the radio silence may make a bit of sense.

I think the Flames are waiting to see how the political landscape sits after October’s federal election.

THE ECONOMICS OF RICHNESS

There’s an old adage often repeated about billionaires: “You don’t get rich by spending a lot of your own money.”

The Flames owners are a bunch of rich businessmen who didn’t get to where they are by burning a lot of their own capital on their projects. Particularly in the energy sector – but generally elsewhere, too – firms partner up in order to minimize economic risk. And in terms of massive construction projects like the proposed mega arena that’s being discussed, the idea is (a) to avoid putting up money up-front and/or (b) avoiding having to pay a ton of interest on loans that allow them to avoid putting up money up-front.

But public finance isn’t what it used to be, and infrastructure pressures throughout Canada have lowered governmental willingness to put money towards arenas and stadiums – as well as the public’s appetite to give money to projects without much obvious direct public benefit, particularly compared to roads, schools and hospitals.

THE FUNDING WELL RUN DRY

If you live in Calgary, you’ve probably noticed one thing: there’s only recently been a big spike in transportation projects. Between the West LRT, the ring road and ongoing discussions about the South-Central/Green Line, there’s a lot of money that’s headed into town in recent years.

If you live in Calgary, you probably have also noticed that outside of that small handful of big projects, much of Calgary’s transportation infrastructure is quite old. The major arterial roadways in town date back to the 1970s in some cases, and in many ways Calgary is a city that’s outgrown its old road system and is in dire need of refurbishing. It’s a city of nearly 1.2 million people (and almost as many cars) with a system set up for roughly 500,000 or so cars. Between age and use, there’s been a lot of money being sunk into maintaining the transportation network in town.

The upside is that in keeping with the recent societal interest in sustainability, transit-oriented development and basically getting cars off the road wherever possible, the city’s been investing in a bunch of things designed to modernize the city’s roadways and transportation system in general. But combined with a downturn in the economy and a general antipathy towards taxation increases across all levels of government, that means that the money that the provinces and cities have to put towards infrastructure projects are typically going towards roads and trains and buses, and not towards arenas or big recreation projects.

The perception of governments not wanting to invest in those projects is so well-known, Edmonton mayor Don Iveson didn’t even both to kick the tires with the new NDP government about the new Edmonton Oilers building. Iveson was quoted at the time: “We’ve been told no several times by previous governments. I’m pretty
sure we’ll get told no with this new government. That’s not how I want
to start out working with them. We have a bigger vision.”

That said, with the shiny occasion of Canada’s 150th birthday coming up just over the horizon, and the hearts and minds of voters probably still somewhat undecided, the spring federal budget included a few handy items that could be helpful for the Flames ownership if they wish to keep some money in the bank.

POTENTIAL OPPORTUNITIES

In general, there’s a few places where the Flames, or the city or province (on their behalf), could ask for funding.

Under the umbrella of what’s called the New Building Canada Fund, there’s billions of dollars available for things like roads, public transit projects, recreation facilities and things like that. The reported inclusion of the amateur fieldhouse in the proposed building potentially makes the project eligible for some funding. Governments like putting money into amateur sports facilities because most of the time, there’s a ribbon-cutting and a permanent plaque by the entrance saying who contributed. The next time you head down to Winsport or your local arena, take a look around – odds are there was a ribbon-cutting ceremony and some minister got to hold giant novelty scissors.

Iif the proposed West Village location goes forward, there’s two big issues: traffic and concern over contaminated soil reclamation. But there are funding opportunities in those areas, too.

For traffic, the city is already knee-deep in a project that’s necessary even if the Flames build their arena on the moon – Crowchild Trail. Traveling on Crowchild over the Bow River during rush hour is an exercise in patience (and insanity), and quite often when I’m driving down Bow Trail prior to Flames games I can still see a massive, massive line of cars going north – even when I’m rushing to make at 7pm puck drop. That’s crazy, and there’s probably some level of funding available from the federal government based on the importance of the road, the scope of the project to fix that roadway for traffic flow, and any number of other reasons. Regardless of what happens, there’s a strong chance that roadway won’t be a problem in the future. The study is slated to be complete by the end of 2016, and following that, odds are the city will get moving on a plan to fix the problems they identify. Depending on what happens in the West Village, that may also mean less money available to help with a Bow Trail realignment – if it goes that way. (To be honest, westbound Bow Trail is about as far north as the arena project would go and eastbound Bow is about as south as it’d go, so it’s not like realignment would be essential.)

In terms of the land itself, the West Village is the former site of Canada Creosote, and the area would need to have the soil remediated before anything could really be done with it. So if you, like me, have ridden the C-Train past Sunalta and gone “Hey, they really should do something more with that nice land than car dealerships,” well, they can’t. Unless they get a bunch of money to do it.

But hey, here’s the federal government to the rescue again! There’s a Federal Contaminated Sites Action Plan, which the recent federal budget just jazzed up with more funding. Granted, it’s unlikely that the old Canada Creosote site could be completely cleaned up on the federal dime – there’s a lot of projects that fall under the purview of the Contaminated Sites umbrella – but if you’re the Flames ownership, you’d be very happy if any part of the project got funded even in part. It’s money you don’t have to spend.

WHY THE ELECTION MATTERS

As anybody in business will tell you, it’s not what you know, it’s who you know. The Calgary Flames ownership group is well-established in any number of important circles in Canada and after almost a decade of Conservative Party rule in Ottawa, I think by now the Flames have made the right friends and at the very least know who the key decision-makers are in the relevant portfolios. And just like a traffic light frustratingly turning red just as you hit the intersection, right as the Flames are seemingly all set to get rubber on the road for their shiny new building… there’s a danger that October’s election may put in a new government.

When you know the government and its priorities and tactics, you can make plans with some notion of how everybody will behave and react. So if you’re trying to estimate costs and build a business plan for a $500 million project, it really helps to know the political and economic landscape. The economic landscape is already tenuous, and having to break in a whole new set of political decision-makers at the federal level – whether they’re New Democrat or Liberal or whatever – is undeniably not an ideal situation.

SO WHAT?

A change in the federal government wouldn’t mean that the arena project is doomed. The same amount of money will probably be available for the arena project if the NDP or Liberals are in power than if the Conservatives are. The bigger challenge will be logistics – having to get familiar with new decision-makers, with their funding priorities and familiarizing them with the project. Ever have to get a new boss or department head at work? It’s like that, except with a $500 million construction project with complex timelines and multiple stakeholders involved.

I have no inside information about the arena project. But knowing what I know about billionaires and their hopes not to sink too much of their own coin into projects, I’d bet that the Flames are hoping for some amount of help from the federal government on some part of this extensive, expensive project.

That’s why I doubt we hear anything concrete about the arena project until after October 19’s federal election.

  • beloch

    Over the last three seasons, the Flames have saved $32.5M on player salaries by not spending to the cap. The Flames’ owners have always professed they were able and willing to spend to the cap if it was for the good of the team, so it’s likely the money was there and pocketed.

    Roger’s Place in Edmonton is projected to cost $480M and we can expect a similar cost for an arena in Calgary. That means the Flames almost have a 10% down-payment saved up just from skimping on payroll. Couple that with insanely low interest rates and an economic downturn, and you have the perfect time to build an arena.

    I honestly hope whatever party wins the next election recognizes that the Flames’ ownership is swimming in cash and tells them to pay for the new arena themselves. There is absolutely no need for public funding.

  • BurningSensation

    I for one, am sick of giving Billionaires tax $ and giveaways to build arenas.

    If they want public funding, they should give up a stake in the team commensurate with funding received.

    Or, just pay for the damn thing on their own.

      • Greg

        The problem is there’s always some other city that’s desperate enough to land a pro sports team that they will offer stadium funding to get one, and cities with existing teams that have to keep theirs. The other part of the problem is there’s lots of people who love their sports and don’t understand the consequences of public funding so they will vote for (or against) politicians who do (or don’t) support that.

        People do smart things. So even though most politicians are generally smart enough and educated enough now to know it’s stupid to pay for it, but they know getting (or keeping) a pro sports team gets them elected and employed more often than a balanced budget does. So they will always have personal incentive to do what isn’t good in the long run.

        I wish the Canadian and American federal governments would just make it illegal to contribute public funds at any level to professional sports. If it’s squashed in both canada and the U.S., where else are you going to threaten to go with that team? If you take out the possibility for different political regions to compete against each other, the debate goes away and the billionaire business men can start paying for it themselves, and the millionaire athletes can take slightly lower salaries to make the economics work, and public governments can back to funding luxuries like schools and hospitals.

        • piscera.infada

          That’s kind of the point of the John Oliver piece about the NFL and LA. NFL teams really do always say they’re going to move to LA, and it’s been happening since the Rams moved–the fact that the Rams originally flopped there seems to elude many in the conversation. Truthfully, with a new round of NHL expansion where could a team even relocate to? Would that really be more lucrative for Calgary’s ownership than forking over the money for a new arena?

          It’s not a zero sum game for government. As the Marlins’ rep said in the video “we [as an organization] keep our profits” (emphasis added, but his inflection made it clear). This is a zero-sum game for an owner: a new building makes more revenue–if you’re in a strong market you won’t leave for an inferior market. Any good that is dispersed to the city as a whole (which again, we know is often a fallacy–with notable exceptions [ie. Staples Centre]), is largely tertiary (if that) to the interests of the owner.

          I do agree about location though. When planning an arena, or “sports complex” that is a massive deciding factor in how well it works.

          • FlamesRock

            Plus, you know, LA has a hockey team.

            What are they going to do? Most of the team ownership are Calgarians and they do it for the prestige as much as anything. Do you think they are going to peddle the team to Vegas or Quebec City?

            There are lots of good lawyers in the city that can help work out all kinds of creative ways to keep the costs down oh, and hey, I hear that Murray Edwards guy is pretty smart.

            Now that may have come across as a bit more sarcastic than it should, but Calgary isn’t Edmonton. Less need to pour public money into keeping a team here than there is there – visitors like it here.

    • SmellOfVictory

      Seriously. There have been multiple studies done on stadiums, and the short of it is that they don’t have any substantial economic benefit to the surrounding area. That means if we put public funds into a new stadium, they’re essentially being flushed down the toilet.

      The Flames are a profitable franchise, and look to be profitable even in spite of the weak Canadian dollar. Ownership can afford to pay for a new stadium, and absolutely should. Between Flames games and concerts (with a new building they won’t have the structural limitations of the Dome holding them back, either) there is no reason they need outside funding.

      • FlamesRock

        Generally agree but the stadium needs to be centrally located so that traffic dissipates in all direction after events and there is limited need to build more/duplicate transit to the games. Just need to avoid the Ottawa situation. The Senators essential play in a stadium that the equivalent in Calgary would be the North edge of Airdrie or South edge of Okotoks and this causes a bunch of problems.

        Would rather see the absolute smallest amount of public assistance to get the new stadium build somewhere central than no public funding and a non-centrally located stadium.

    • Colin.S

      Giving them actual money is a bad idea, tax breaks or incentives of some sort to develop an area like the West Village are another story.

      Some of the talk has been of larger scale development and revitalization of the area. If the Flames can be in on it, or the first to set the ball rolling on a redevelopment of the area, then giving land or other incentives would be good.

      • Greg

        This land is contaminated with an estimated 4000 m/cubed of creosote.It has to be a huge embarrassment to all three levels of Govt that this problem still exists after all this time. The creosote can be found across the river. The contamination is long overdue from being removed.

        Building a soccer pitch/football field/rink on this reclaimed site makes sense IMO.

        Incentives given to the Flames management wouldn’t bother me, as long as it doesn’t affect taxes.

  • supra steve

    suba steve recently purchased a “new to him” preowned Subaru STI. The old FXTi is 11 years old and still has some life in it and in some ways is still better than the “new” STI, but there comes a time that you have to replace your old depreciating assets, I understand that.

    I just question if it is time for the Dome to be put out to pasture? I have no insider info on the Dome or on the costs of upkeep or the potential for income of the old building. I just hope the ownership and management group carefully consider the price of ownership of a new building (as I have done with my purchase). I saved over several years and made my purchase without taking on any additional debt; I hope the club has been saving the “nacho money”.

  • supra steve

    Its obvious that by Ken King saying there will be an announcement soon (which has been going on for years) they think they are going to get political help. Then nothing happens because the flames owners are not getting what they want and I doubt they ever will if tax dollars are the issue. Politics are changing in this country and unless ownership puts out of there own pockets this project is not going to happen. Mr. King you have to realize that you have been making these new arena announcements “soon” so many times that you are losing your and the teams credibility because its obvious your looking for tax dollars…..and not getting it.

  • Christian Roatis

    This was excellent, Ryan. Really informative. Still think they’ll end up using the GSL land. They can turn the SportsPlex and Crowchild into one monster project. Also super convenient having the arena right beside a road that connects the north and south of the city.

  • Colin.S

    I’ve made my feelings known on public funding before and I’ll say it again. I’m 100% against public funding where the end result ends up in the Edmonton Oiler lease agreement(such a terrible deal for the city).

    There’s some decent examples of teams building their own stadiums and not going entirely bankrupt over it. Heck the Canucks built their own building privately and don’t seem to be any worse for it.

    If the Flames E&S group wants to keep all the revenues from the building than I’m 100% against the Feds/Province/City from Funding any of the actual building. I still support funding for a lot of the infrastructure to support the building (LRT connections/lines, roads, bike traiis, etc.). However if the Flames don’t mind giving up revenues outside of the NHL games(concerts/events/conventions) then I think an agreement could be worked out that benefits the city as well.

  • I too am against public funding for projects for billionairres that are direct for their profit. That being said. The Flames owners are the least of my worry as owners when it comes to the work they do in giving back and being members in this community. There are far worse builders and developers and rich CEOs in this city who get helping hands from the governement only for their own private welath accounts who do nothing to give back. So giving them(the flames) a helping hand doesn’t in any way make my stomach turn like that nonsense that went down up north with KATZ.

    I wish people realized that backroom deals, economics of billionares getting government handouts goes beyond sports. They’re just stories you dont hear about because not every CEO is paying it’s employees millions to shoot a puck in the net or dunk a ball in a hoop.

    Do you tink avi homes (avi amir) Or shane (cal wenzel) pay top dollar for the land developments they plop their cheap homes by the dozen on? Nope. they get tax breaks and the land at reduced cost and when those costs go up because they city needs to pay for infrastucture as they sprawl out into the boonies that money gets passed off to the consumer. So why is no one complaining about that?

    Or what about the taxi commission and how they continue to work with local city government to block startups and independent contractors from getting into the market…. to protect their profits.

    it’s not just the Flames who ask for government assistance to be a viable and profitible business. This is how business works. Get used to it.

    The flames will get some sort of funding. And given the area they want to build on and the magnitude of what they intend to probably build (if turns out to be true)… they’re gonna get a good chunk of money.